In this latest MAX episode, Tu & Lei catch up with former journalist and current author Henry Sanderson whose recently launched book, Volt Rush: The Winners and Losers in the Race to Go Green - is one of the most compelling and insightful books about the previously little known rare earth metals that are key for building the battery cells that power electric vehicles and which are forecasted to be in much higher demand as the world begins its massive transition to EVs. This book is a must read for anyone that’s in or follows the battery or EV sector.
Just over a year ago, Henry left the Financial Times after over 7 years of covering commodities and mining and is now the Executive Editor at Benchmark Mineral Intelligence, one of the leading providers of data and information on the battery industry.
In this latest MAX episode, Tu & Lei catch up with former journalist and current author Henry Sanderson whose recently launched book, Volt Rush: The Winners and Losers in the Race to Go Green - is one of the most compelling and insightful books about the previously little known rare earth metals that are key for building the battery cells that power electric vehicles and which are forecasted to be in much higher demand as the world begins its massive transition to EVs. This book is a must read for anyone that’s in or follows the battery or EV sector.
Just over a year ago, Henry left the Financial Times after over 7 years of covering commodities and mining and is now the Executive Editor at Benchmark Mineral Intelligence, one of the leading providers of data and information on the battery industry.
MAX #11 Henry Sanderson
Recorded August 24, 2022
Tu Le:
Hi all, Tu Le here, one half of the China EVs & More duo. Lei and I have been brainstorming about different ways to bring you, our audience, relevant and compelling content about the China EV, AV and mobility sectors. Especially now that a number of companies that we’ve tracked over the 80+ China EVs & More episodes have become global phenomenon.
So I’m very pleased to introduce our latest China EVs & More MAX episode, where we bring you conversations we’ve had with special guests from the EV, AV and mobility space.
In this MAX episode, Lei and I catch up with former journalist and current author, Henry Sanderson, whose recently launched book, Volt Rush: The Winners and Losers in the Race to Go Green, is one of the most compelling and insightful books about the previously little known rare earth metals that are key for building the battery cells that power electric vehicles, and which are forecasted to be in much higher demand as the world begins its massive transition to EVs. This book is a must read for anyone that’s in or follows the battery or EV sector.
Just over a year ago, Henry left the Financial Times after over 7 years of covering commodities and mining and is now the Executive Editor at Benchmark Mineral Intelligence, one of the leading providers of data and information on the battery industry. We get right into our conversation with Henry.
Tu Le:
When you said the Koreans are at a disadvantage, because right now Kia is the number two EV sales automaker in the United States. So this really puts them in a precarious position. Do you like, and when you say that, because I agree the IRA is very aggressive on its targets, but to a point the United States is a bit naïve in how aggressive these targets are, or do you think that was by design in order to really aggressively pull away from the reliance of China? Because I'm not sure how to look at that, right?
Henry Sanderson:
Yeah, I think it was designed to say, okay, maybe Manchin and others, we're going to pass this thing, I want you guys to really, really escalate the build out of supply chain to build those jobs domestically to reduce reliance on China. I don't know the auto industry is happy about these ambitious targets, by the way. And perhaps they could have, could have lobbied a bit more effectively or got some more realistic targets. But I think, I’m not an expert of what's going on in D.C. but I think it is, it is a case of we're going to pass it, but we want you to really step up this supply chain. But I do think because it's ambitious, it risks, it risks not being achievable, right? Which is slightly defeats the purpose. And I think I really agree with the Act and what it's doing, right? It's late in the day, the U.S. really needs to stimulate their sector, but I think what it does is puts the U.S. in the race, right? You can't immediately win the race from day one, right? It's putting the U.S. in the race, it’s not winning the race, right?
I think perhaps what the politicians think is we will come out with this act, and will immediately win the race or immediately cut China to zero. I think it's very naive to imagine in the near term, we can completely cut reliance on the Chinese supply chain for batteries and electric vehicles, it’s just not going to happen. Things like graphite, graphite or anodes in batteries, China produces over 90%. You can't, you can't just cut their reliance from 2024. It takes time. So I think the intention is right, but it's going to take time to build up a supply chain, especially in North America. Australia has lithium, Chile has lithium. But a lot of it is processed in China. So you also got to, if you want to get the lithium from the free trade agreement countries, you got to process, also perhaps process it outside of China. So it's all quite complex, it's all achievable, and it's not rocket science, but it's going to take time.
Tu Le:
I think it's important. And we'll talk about this later, because I think we have a few questions about it, but there are multiple steps in the process to get the raw material into a battery cell. So there's the mining and the processing. I think that's an important distinction to have. Lei, did you want to ask the next question?
Lei Xing:
No, I was just thinking what the U.S. announced with the IRA is kind of similar to what China did that basically helped prop up companies like CATL, which was the unwritten rule that you had to have these battery cells from domestic suppliers. So that's why the LGs and the Samsungs, they got kicked out.
Henry Sanderson:
Yes.
Tu Le:
That list of 17 companies, right?
Henry Sanderson:
I think that was a brilliant move by China completely protectionist, as you say, but I do think the difference was that CATL actually had a decade or more of battery experience because it came from ATL, right? ATL was making lithium-ion batteries for mobile phones and MP3s. So it actually had a lot of experience. And I think the same, BYD right, started off making batteries for electronics. But I agree, it follows in that mode of suddenly saying we don't want, we don't want foreign companies in this supply chain. But I think that the difference is CATL already had a lot of experience through ATL, and it's an important lesson to learn how China achieved what it did, right? And I think China is remarkably good at a scaling up with the backing of government policy, right? Like you said that policy was completely protectionist, right? And just completely banned South Korean and Japanese battery companies being on the market.
Tu Le:
And without outright saying that they're banned, because it's never a direct statement or policy that bans them.
Henry Sanderson:
But I mean the IRA in contrast, it does, if I read it right, if it's talking about foreign entities of concern, it does seem to effectively ban Chinese companies. I think my overall point is that geopolitically, the West wants to create a non-Chinese supply chain, right, an allied supply chain, but everyone seems to have slightly different approaches like Europe has the same strategic ambition as the U.S., but yet we see CATL coming into Hungary. We see VW owning the stake in a plant in Germany. So we see Europe seems to be more willing to accept Chinese companies into Europe, at the same time as nurturing homegrown competitors whereas the U.S. seems to be taking a much more strict approach, which is we don't want China involved at all, which I think is a difficult call. And I think it's going to, the implementation will be interesting to see whether Chinese companies in Mexico can be eligible. There's any way for Chinese companies to be involved, what level of foreign ownership they need, etc.
Tu Le:
You bring up a good point Henry, because the U.S. government doesn't want China in any of the supply chain for electric vehicles, but Ford is very happy to partner with CATL right? So, and we know that BYD and CATL are looking at North America to put plant a flag, right? And probably Canada. So it'll be interesting to see how that plays out. My fear is that because of the aggressiveness of the IRA that there will be carve outs, the GMs and the Fords will lobby to have carve outs, and that will help effectively CATL and BYD probably, as much as it will help the Koreans.
Henry Sanderson:
Yeah look at the situation, which is that, if you want batteries with nickel and cobalt, it's very hard to, almost all the processing of nickel and cobalt is in China or Indonesia. If you want to go LFP cells, almost all the LFP production is via Chinese companies. If you want to talk about energy storage, CATL and BYD, they produce most of the energy storage batteries in the world. It's just that the West has got itself in a difficult situation, right? And I don't think you can just reverse it at the stroke of midnight. No, the stroke of 2024 is going to take time.
Tu Le:
That's why I think your book and this conversation is so important, especially for the western audiences, because I don't believe many people who are just being forced to wake up to electric vehicles in the global phenomenon that they are now, that they realize how behind the United States and Europe to a lesser extent, is when it comes to higher up the supply chain, right? One of the questions. So we can get to more of 101, raw materials 101. What, because you and I, we're kind of dancing around the raw materials, but which raw materials are you talking about, Henry, in your book, which raw materials are so important for battery manufacturing?
Henry Sanderson:
I talk about lithium-ion batteries, which obviously are almost all electric vehicles use lithium ion batteries, and in the lithium ion battery, you have lithium, cobalt, nickel, manganese, and in the anode you have graphite. But in the book, I mainly talk about lithium, cobalt, and nickel, and batteries as well, talk about CATL. Graphite is very important, but I didn't have the access in China to investigate in that side of the situation. So I mainly talk about lithium, cobalt and nickel in the battery. For lithium-ion batteries, that's the raw materials you need and manganese as well. So my book is basically looking at the big players in each of these minerals and some of the issues, the issues involved with that.
Tu Le:
Can you talk about where you would find currently most of the nickel, most of the lithium, and the manganese, which regions, which countries?
Henry Sanderson:
So it's really interesting because each mineral has a fascinating sort of history and story behind it. Just starting off with lithium. Australia is the biggest producer. It was Chile and then Australia overtook Chile. And all of that lithium from Australia goes to China. So you have a sort of Australia China access for lithium, very much like you have on iron ore. And then when you look at cobalt, the democratic republic of Congo is the Saudi Arabia of cobalt, produces around 70% at the moment. And it's going to probably be 60% by the end of the decade. It's going to be the key player in the cobalt market. And then in nickel, we've seen this almost phenomenal rise of Indonesia in the nickel market. And Indonesia is going to be the key supply of nickel for this decade. There's no nickel without Indonesia. It's one of the only countries seeing growth in nickel production. Other countries are Canada. Russia is a big producer, but obviously now that Russian supply looks a bit more unlikely to enter western EVs. I really look at those sort of three minerals in my book.
Lei Xing:
So Henry, talk about this current and future volatility of the pricing or cost of these minerals, what are you seeing?
Henry Sanderson:
We're seeing prices become way more volatile and go up quite a bit, right? And I don't know if you saw CATL earnings this week, their gross margin, if you look at all the Chinese battery producers, their gross margins are falling, the growth rate is slowing. And then if you look at the lithium producers like Tianqi Lithium, other lithium producers, you'll see their gross margins are going up massively. So the money being made in the supply chain now is shifting from battery to lithium and raw materials. And this is simply because these prices have been very volatile, but they have also gone up a lot, especially in the case of lithium. Battery gray lithium prices in China are up 400% over the past years, something crazy like that, right? So the lithium mine is printing money at the moment. And nickel’s been extremely volatile with the Russian invasion of Ukraine. And we saw a situation where nickel just rapidly increased in price. We know there's a story of a Chinese biggest nickel producer which had a short position which lost a lot of money.
Tu Le:
He got into a little trouble.
Henry Sanderson:
All these metals have been volatile, and that's increasing the cost for the not only increasing the costs for battery and battery producers and OEMs, but raising concerns just about security of supply and about getting hold of supply and locking down supply and having contracts for supply. Because it is a race, right? What if one automaker is locked up? Contractually some supply that's not available for someone else, right?
Lei Xing:
So this little detail from the Mercedes agreement with Canada was this purchase of was it 100,000 tons of lithium hydroxide, I think?
Henry Sanderson:
10,000 tons.
Lei Xing:
Does that help?
Henry Sanderson:
Yeah so I was just having a look at that today.
Lei Xing:
From a Canadian company, I forgot the name.
Henry Sanderson:
Yeh Rock Tech. So I think it's 10,000 tons of lithium hydroxide. I'm trying to think in terms of EVs, but probably that's 250,000 EVs or 200,000, something like that. I guess it's around that level. So it's not huge. And this company’s project has not gone into production yet, right? So the interesting thing we've seen with automakers is a lot of them have signed MOUs or deals with companies that are not yet in production, right? That will be in production in the next few years. So a lot of it hangs on these projects being coming into production on time. The mining industry, the industry in general doesn't have a good track record on producing new projects on time. And even when Chinese companies go overseas like Tianqi Lithium went to Australia to build a hydroxide plant that was over budget and went behind schedule. So it just isn't easy to get new projects on stream in time. So you mentioned this Mercedes deal. This is a step in the right direction, this is what they need to do. But is it going to be ready in a couple of years? We don't know. We have to wait and see.
Tu Le:
It should be noted that countries are also going on the offensive, right? Because Indonesia is considering a tax on any nickel that's being exported out of Indonesia. And then I believe Ganfeng, Mexico had talked about nationalizing lithium mines, so a mine that Ganfeng had acquired the rights to, they might not be able to mine it. So it is, it cannot be only supply and demand. It's geopolitical and it's strategic on the world stage, too. So I think that's really, really important to keep in the back of your mind as all these things are happening, right?
Henry Sanderson:
I think that's fascinating is that every government with these resources wants to capture as much value as they can in this is supply chain, and they just want to export raw materials to China or elsewhere. Every country is trying to position itself in the supply chain and create more of the value. And Indonesia is interesting, has been one of the most successful in doing this. And it's really incredible to see what they've done, which is they banned raw nickel exports a few years ago. They said, come build the processing in Indonesia, and China signed up with great gusto and went to Indonesia and built these big industrial parks where you have all the processing into more higher value products. And now Indonesia is saying, we want battery production in Indonesia, we want EV production in Indonesia. And if they can achieve that, that will be real achievement to get mine to EV that's probably the dream. I mean Chile has tried to move up the valley chain. It hasn't been successful. And now Mexico has nationalized lithium resources, and has created a state run company to mine lithium. And I think this reflects concerns that these countries might lose out if they're just exporting raw materials. Everyone wants sort of the value add of the supply chain.
Tu Le:
I think history says they will lose out. So I think it's prudent for them to really inject themselves into the process where they can create some jobs. And for Indonesia, in particular, their neighbor Thailand, they predominantly produce vehicles. So I think they really want to take over the EV production crown, as opposed to the ICE production that Thailand owns. So smart moves by these countries and the leaders of these countries. And they have to look out for their best interests, right? And so a decision that they make might not make the United States happy, or it might not make China happy. But you know what, at the end of the day they have to look out for their best interests, so.
Henry Sanderson:
I think it is interesting is a lot of these countries can be caught between China and the U.S. and I think you take a country like the Congo, Democratic Republic of Congo. The U.S., the west was absent from the country and it was Chinese companies willing to invest with a few exceptions over the last decade. And now the U.S. is coming back in and becoming much more engaged. And I think all these countries, they don't want to tie themselves to either party, right? They want to get the best they can from whoever invests.
Tu Le:
They want to play the U.S. and China against each other effectively. But, and this is where it gets interesting for China, because and we know this, they talk about staying out of foreign affairs and domestic affairs of other countries, but now that they have assets all over the world, it's going to be important in, we're going to start to see probably military, Chinese military entering these countries to protect their assets, right? Which is going to be really interesting and really unnerving to, I think, some of the western countries. That’s the reality of it.
Henry Sanderson:
Where you have money invested, where you have companies invested, then you get political influence, right? And you can see from the meetings that a lot of these nickel companies have in Indonesia, they have influence and you're right, where money goes, and you have political influence, you have political leverage. And what happens when things go wrong. And we're seeing an interesting case in the DRC at the moment where there's a dispute between China Moly, which bought one of the biggest cobalt copper mines there and the government. And it's going to be interesting to see how that's resolved and what's going to happen with that. And that's the kind of thing we're going to see more of.
Lei Xing:
This is probably a battery materials 101 question. If we look at the entire value chain from the availability of these minerals and resources, to the mining, to the processing, to the transportation, to finally getting into the battery cell to the pack. If you have to rank this in terms of cost from top down, what's, where does this, the most cost go into if you have to rank those factors?
Henry Sanderson:
Yeah, that's a tricky question. I'd say, building a mine is the most time consuming. And I just sort of give you a rough example, building a mine, we are talking about 5 years minimum, whereas the next stage of chemical processing three years, cathode two years, cell manufacturing, you can build much quicker at one year, perhaps, you know, in China CATL builds in one year. But I think cell manufacturing, I think, is one of the most capital intensive. It takes the most capital to build these battery factories at scale. But mining, I’d say, is the most difficult in terms of time, in terms of especially in the west, permitting, community opposition, legal challenges, things like that. That's the most difficult stage. Whereas cell manufacturing, both in China and the west, I reckon, is probably quicker to do but takes more capital.
Lei Xing:
In that sense, I’m thinking this Canada thing is right now talking to talk rather than walking the walk. I mean it's still quite some time from walking to walk.
Henry Sanderson:
Yeah, I would say Canada is a mining country, it has a history of mining, so it's going to be easier in Canada than in the U.S. probably now to get mines going, to get it sorted out as a mining country, mining is in their blood right, it’s in the stock exchange, right, it's in that sort of history of the country. I would say that they have history of, there was a lithium project called Nemaska Lithium that went bankrupt a few years ago. They did try to produce lithium before and it didn't work out. So that just shows that it is difficult. And Softbank invested in that project. I remember I covered it at the FT and it was a great hope for Canada and Canadian lithium. And it went bankrupt because of costs and other issues. So it ain't easy. But I do think Canada is a mining country, that helps a lot, right? If people are used to mining and it's got the infrastructure, it's got the logistics.
Tu Le:
With your summary of how long these major processes take, right? I think that's why we've all kind of agreed that maybe these aggressive requirements are unrealistic. The 2024 seems really unrealistic, because it takes so long to get that first mass produced volume of raw materials ready for a battery cell to be available.
Henry Sanderson:
But just to expand on that. You make a really good point, which is that the mining obviously takes a long time, but it does say that it can be processed in these free trade agreement countries or North America, I think. So you could, it's quicker to build processing. So you could see lithium come from Argentina, or actually from Australia, or actually anywhere. So including Argentina, be processed in North America to meet the requirements. And this is something we could see in cobalt as well, right? Instead of going from the Congo to China, which it all does at the moment, you could see it go from the DRC to Canada and be processed in Canada. And then that would take the requirements of the bill. As far as I understand the language being written, so they could build more processing of raw materials in North America. And two, as we are seeing in Canada that cathode production is going to be built in Quebec, which is probably going to take much quicker time than building a mine or getting a mine up and running. So we could see the battery component part of the tax credit be met by cathode production in Quebec or in the U.S., that could happen. But again, to my earlier point, this really falls upon the Korean companies, because GM has done a deal with POSCO, obviously, a Korean company, in Quebec to build this cathode plant. We've seen all these deals with Korean battery companies in the U.S. right, so.
Tu Le:
Tennessee and Kentucky.
Henry Sanderson:
Yeah, I don't know how much the burden of this bill will fall on OEMs, or if they'll just tell these Korean companies get China out of your supply chain and try to meet these targets. So I think from what I read, the Korean companies aren’t that happy about it.
Tu Le:
Sure they're going to rely on the U.S. OEMs to hire more lobbyists in DC probably, so.
Henry Sanderson:
The Canada thing Lei, that you are asking quite a bit is interesting because we are seeing in Quebec a real cluster emerging of cathode, minerals, recycling, etc. And a key reason is the hydropower that they've got there. And I think this does speak to a sort of broader point, which is we're going to see global clusters evolving where you have good supplies of clean energy. We can see with the current energy crisis, right, that a supply of energy is critical, right? I mean plants are shutting in Europe now, because energy prices are too high. So we got to get to grips on the energy situation as well.
Tu Le:
And one thing, we all know Steve Levine, and I think we have a ton of respect for his knowledge. He did, he just did a simple calculation and added up all the legacy OEM's forecast of demand by 2025 or 2027 or something like that. He said, based on some of Benchmark’s calculations, there's a huge delta between what they say they're going to build and the amount of raw materials that's going to be available at that time. Do you see a lot more volatility in the future and much more aggressiveness when it comes to the private enterprises, as well as some of the governments in order to secure these raw materials, like lithium, like cobalt, like nickel, because there's a huge delta between what people say they're going to build in 2025, 2027, and the forecasted raw materials that will be available at that time.
Henry Sanderson:
That's the thing. It's a lot of these goals seem unachievable, just taking the current total market of raw materials. But then if you're saying, we don't want Chinese companies involved, or we want to build more localized supply. You're making it that much even more difficult, right? To meet those targets, right? If all the companies producing nickel in Indonesia are Chinese at the moment, which they pretty much are, and then you're saying well, you can't touch that nickel, you're making it even more difficult to meet your targets. And if you're saying we don't want CATL batteries, we don't want this and that we want to localize all our supply chain. And then on top of that, you want to say everything we want in our battery needs to be sustainable, needs to be green, needs to be XYZ, then you'll make it even more difficult as well. I think these targets going to be tough without a huge marshal plan style industrial build out in the U.S. and Europe. And I think a lot of people are just unaware of the scale of the challenge and the kind of investment we need in the West to catch up, right? If we're going to tick all these boxes, everything has to be sustainable, non-chinese, localized, etc., which is what the OEMs are saying.
Lei Xing:
When do you expect this global flow of raw materials, minerals kind of change from the current to the ideal, let's say, less dependent on China, if ever.
Henry Sanderson:
I think it's really interesting, because by 2030 going on, recycling is going to play a much more important role. Interestingly, if you look at CATL, they said in their earnings this week recycling is providing a meaningful amount of supply for them now. Recycling is more far advanced in China than in the West, but it's going to be built out in the West, too. And I think by 2030 going on, we're going to see much more recycling, we're going to see much more localized supply probably by 2050. This situation will be much easier, but who knows what the technical development on batteries is going to be as well, right? What kind of new chemistries are going to involve? But everything has its supply chain. People talk about solid state, is a great advancement for the consumer. You can jump in your car, drive whatever, 600 miles, 800 miles. But if you're introducing new materials into a battery, you got to think what's the supply chain to scale that up to a meaningful size? And if you replace your liquid electrolyte with a solid material, what is that supply chain? Where does it come from? Who controls it. How are you going to localize? Is it green? Is it made using renewable energy? Often you can replace a material in a battery, but then you have another complicated supply chain that might look great at a small scale. But what is it like at a large scale? Who knows what battery technology would do? But I would just caution that every new material needs its supply chain, right?
Tu Le:
And I would argue that, and I think maybe the two of you would also agree that solid state still pretty much a science project. And volume is not going to come at least until late into 2020s. So I think it really is trying to diversify as quickly as possible. And to your point being led by the Koreans, right? Because the crazy thing is as raw material prices go up, because of the competition between two of the larger players, BYD and CATL, that puts a cap on pricing of the battery cells. But, eventually, battery cells in the short term should go up in price. They have been going up over the last 18 months. That's going to make it even more difficult for EV adoption, at least in Europe and the United States. So I don't know who's going to win. I don't know how it's going to play out, but that's part of the interesting part of it, right?
Henry Sanderson:
This is what the big question is for the Inflation Reduction Act for Europe and the U.S., which is we need EVs to come down in price, right? We need every single clean energy technology to come down on price. Like it has been doing. But two questions, how much of that price reduction we've seen over the last decade is due to China? Probably quite a lot. How much of that is due to Chinese industrial policies, the use of polysilicon from Xinjiang or the use of coal fired power, right? Probably quite a lot. Going forward if you're going to localize everything in the U.S. and Europe, if you're going to insist that everything comes from not Chinese supply, how much is this going to impact the cost, right? And as you say, battery costs already going up, are they going to go up even more if you're insisting on localizing the supply chain? What's our priority? It’s reducing carbon emissions, right? And how much are we happy to rely on China for some of this supply chain? These sort of big questions haven't been worked out, right? What kind of reliance for China is acceptable? How much of the cost increase comes if you don't want to rely on China that could push up EV prices, which is what we don't want to happen, right?
Tu Le:
Right. And then also refining, the refining process is not all equal as well, because I was reading that nickel refining in Indonesia is actually a pretty dirty water intensive process. So that could really also defining what's considered proper and clean refining is probably an important question that needs to be answered in the short term as well.
Henry Sanderson:
Definitely, nickel is dirty in Indonesia. Coal takes up rely on coal for about 60% of electricity. These are big industrial processes, power hungry processes. And I think that is, OEMs face a lot of sort of delicate choices. I mean you can green wash, right? That's okay. You can have advertising and PR saying X when you're really doing Y or you can try and get to grips with what's going on in Indonesia and try to help these processes improve and try to make them better. I think that's the real challenge is trying to improve this supply chain so that it gets better.
Lei Xing:
We mentioned earlier at the beginning of the episode recording that lithium deposit in California? How, if that is indeed true, how long would it take to mine and process and enough of it, so the U.S. is going to become kind of self-sufficient? Is it ever going to happen? Have you been following that story?
Henry Sanderson:
I don't want to speak about individual companies, but yeah, anything can happen. I mean a lot of these projects are unproven yet and we're going to find out, we're going to see what's going on in Salton Sea and Thacker Pass in Nevada is another project, probably is going to come on stream. I think lithium is abundant, right? It's just a matter of building the projects, investing the capital, getting the permitting, community on board, etc. And we see new technical innovations, but they haven't been proven yet. So it's quite hard for me to say when they’ll come on stream or when they won't, but where there's a market demand, when prices are high, that's a pretty good incentive for people to bring projects online.
Tu Le:
A little curve ball for you, Henry, do you ever see, and right now it's China because they control a lot of the supply. Do you ever see them trying to squeeze out other private enterprises, non-Chinese private enterprises in order to favor their Chinese domestic companies, or do you see the market really dictating a lot of the supply demand stuff?
Henry Sanderson:
So you're asking about Chinese companies favoring their own… I think that's, I think that's the worry with all of this, which is that you got CATL producing batteries. You've got so many of these Chinese companies in the supply chain, how much pressure and I don't know and how much favoritism would they give to the NIO, the Li Auto, the Chinese startups? In terms of the new technology that they developed, the new battery chemistries, in terms of in terms of just volume. If volume of batteries gets in short supply or any of these materials gets in short supply, what's the sort of pecking order going to be? Are they going to favor the Chinese EV companies over their western customers? I think we may be seeing the beginnings of this, right? Where some new battery tech goes to these Chinese EV startups. Maybe it's not going to the western autos. So I think we could shift in that direction and that's the danger with having everything or so much controlled by Chinese companies. And also just on the broader like political, geopolitical angle, the more we rely on China to decarbonize, the way Beijing sees things, is they're going to use that to their advantage. And they're going to use climate change and decarbonization as part of their leverage in political negotiations. They're not going to separate climate change and say for the good of humanity, that's separate from the U.S.-China political relationship. That's separate from the EU-China relationship, it’s very much in their mind part of the whole way they see the world. So I think it's not ideal for China to control all this supply chain. I think diversifying is key. It's going to take some time. Let's not be naive about the speed at which we can diversify.
Tu Le:
Two more questions. And a follow on to this. Like this is maybe rhetorical. Why do you think the EU and the U.S. was so blind? Because in 2009, China started creating policies favorable to battery technology, to electric vehicles. They've been progressive. It's not like last year, they bought all this mining capacity and mining rights. It's progressively been happening over the last several years. So why do you think the EU and the U.S. took so long to kind of come around on this stuff?
Henry Sanderson:
It's a really interesting question, because I think the roots of this are in the financial crisis, and I think both at that time, and I was in China at the time. I think both U.S. and China wanted to stimulate their economies in a green way and Obama at the time wanted to stimulate and capture the green industries of the future. There was this DOE lending. There was government support for a lot of clean energy companies in the U.S., but I just think it was very unfortunate because companies like A123 Systems. It didn't work out. They were listed on the stock market.
Tu Le:
Who's now Chinese, by the way.
Henry Sanderson:
That's the thing. And it is a kind of tragic situation where a lot of these U.S. companies in solar and batteries went bankrupt, and amazingly were bought by Chinese companies. And as you say, A123 is a Chinese company and there are other solar startups that the Chinese just came in and bought. So not only did China more successfully stimulate their clean energy industries, they also bought the dregs of what the U.S. had tried to. Great. So it's a really tragic situation.
Tu Le:
And the U.S. entities happily sold them, happily sold them.
Henry Sanderson:
Yeah, that's the other thing. And I think the only positive side of that financial crisis story is Tesla, right? And they were a recipient of the DOE loan, and Tesla is the leader, right? So that's a huge success that the U.S. got right that came out of the U.S system of innovation and Elon Musk is very much a compliment to the U.S. strengths. But I do think there was so much else that went wrong. And I think with failures like Solyndra and other failures that we've talked about. Many in the U.S., Republican and other sides pointed to it, be like this is why government support doesn't work. This is why industrial policy doesn't work. I think that's just such the complete wrong message to take, right? And this Inflation Reduction Act is a very clever way of getting a climate policy through. They're using carrots rather than sticks. But finally, they've done it, right? And I think a lot of wrong lessons were taken from the failure that happened after the financial crisis. I think you do need government industrial policy. And I think just the conditions in China was such that they could scale, China is very good at scaling, right? It's very good at making cost competitive manufacturing, partly due to coal fired power, partly due to, right, local governments are so enthusiastic about generating GDP that massively incentivize to generate GDP, so a whole lot of reasons why it worked in China.
Lei Xing:
I was thinking that CATL might well have been an American company that there would be a U.S. CATL, right? But it didn’t happen.
Henry Sanderson:
Yes! I think the interesting thing is that let's say something like LFP the interesting thing is in China, there was a patent restriction on LFP that I think perhaps restricted a lot of industries in the West from developing LFP batteries. So it's a big question of how much did China ignore those patents, right? And just go ahead and produce LFP like, is that another reason for their success that they ignore patents? I mean that's not a very kind of thing that we can imitate very easily, right? But that's another reason, perhaps for their success. But I do think the story of CATL and others is, foreign capital was available for ATL, there was foreign investment, there was foreign IP, it could easily have been a western company.
Tu Le:
Here's the last question for you, Henry, before we'll let you go.
Lei Xing:
Maybe one final from me.
Tu Le:
Sure. Because and this is great that we actually postponed this conversation a couple of weeks, because the Biden Administration, the IRA actually or was approved just a week ago. So how do you think these new policies in the U.S. are going to change the dynamics of how the EV sector is working out specifically on the battery tech side.
Henry Sanderson:
The dynamics, I think, what's interesting about the Act, and we haven't talked about it so much, is the production tax credits. They're in the act that $35 per kWh for battery production. Perhaps that's probably the more important of the act, than the requirement on critical minerals, because this could really, this could really super charge battery production in the U.S., cell production, the talents there, the will is there, so I think it could happen. It could happen pretty quickly with these tax subsidies, right, for battery cells. I mean $35 per kWh is pretty generous. And I think we're in for a really exciting time in the U.S. in terms of clean energy technologies. This is a kind of boost that they need. Also the DOE lending facilities, there's more money for them, right? And this is real money the companies can get to build processing, to build mining projects. We've seen they've lent money to Syrah Resources, which is building a graphite processing plant in Louisiana. So this is what's needed. This is real money going directly to companies to build these projects. And the demand is there, right? The demand for localized supplies is really there. The further question is, will OEMs, will others pay a premium for localized supply? How's the cost of this all going to shake out? I think that's yet to be seen. When you start a battery factory, obviously not producing at a high yield, right? You obviously have a year or two, when you have yield losses, etc. So how long is it going to take? But this is definitely a good boost of production.
Lei Xing:
My last question is, besides BYD and Tesla, who among the legacy global automakers, do you think is best positioned in the battery and upstream minerals, raw materials, GM, Ford, Volkswagen, Mercedes, anybody else?
Henry Sanderson:
What do we say about the Kia and Hyundai, that I guess they don't have any U.S., the problem is that their U.S. presence, but I think GM has done pretty well to sign deals for batteries and raw materials. And Ford recently signed a slew of deals where a lot of these were MOUs which need to be confirmed.
Tu Le:
Kind of meaningless, MOUs are a little bit meaningless, so more symbolic than anything else.
Henry Sanderson:
Let's see. But.
Lei Xing:
No clear winners. That's what you are saying, right?
Henry Sanderson:
I think it's hard to say. I think the Korean automakers are doing really well right, Kia, they're doing, the Koreans are doing really well. But I think Hyundai and Kia, they don't have electric car plants in the U.S. right? So.
Lei Xing:
They're planning to build one. I think in Georgia, I think.
Tu Le:
Yeah, or South Carolina, one of those two states. But hey, Henry, first of all, congratulations again on the Volt Rush book. Can you give us a little more detail on when it's going to launch in the United States and other regions outside of Europe? It's already available in Europe, right?
Henry Sanderson:
That’s right. It came out in Europe in July, and it will come out in the U.S. and elsewhere in September. It ought to be an audio book as well.
Tu Le:
Perfect. And thank you again for joining us. Henry. I was educated about this subject, because I think I thought I knew about a lot of stuff. So it was good to learn from someone who's very knowledgeable in the space.
Henry Sanderson:
Thanks so much for having me, really enjoyed it, and great questions. And I love what you guys do. I like the podcast and the newsletter is great.
Lei Xing:
Thank you!
Tu Le:
Oh, you're a listener? Nice! Thank you!
Lei Xing:
This is your co-host Lei Xing. Shortly after this episode was recorded, I got Henry’s new book, Volt Rush. And I must say, it’s a must read for anyone following the EV and battery space closely, as it describes the key individuals, companies, countries and events behind that rush to dominate the upstream raw materials and critical minerals supply chain for batteries. Henry kind of gave us a mini preview of his book in the pod, and as he points out, it’s naïve to imagine in the near term that the industry can completely cut its reliance on the Chinese supply chain for batteries. We are certainly going to see countries and regions try as this Volt Rush continues to play out over the coming weeks and months.
Tu Le:
Lei and I will be sharing more of our conversations with the men & women around the world moving the EV, AV and mobility sectors forward as part of this China EVs & More MAX series. Some folks will be instantly recognizable, but some will just be people that are doing amazing things in the space that we think deserve to be highlighted. Don’t worry though, Lei and I will continue to host our live weekly China EVs & More Twitter Spaces room that summarizes that week’s most important news coming out of the China EV, AV and mobility space. For those that can’t catch the live show, you can find the China EVs & More pod on all major platforms or wherever you normally get your podcasts.
As EV adoption reaches its global tipping point, it’ll be even more important to stay updated on everything that’s happening here. Lei and I are confident that China EVs & More is the best resource to do that. Until next time, as always, thanks for listening!